Question

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units):

Sales	$	95,000
Variable expenses		57,000
Contribution margin		38,000
Fixed expenses		31,920
Net operating income	$	6,080
1. What is the contribution margin per unit? 2. What is the contribution margin ratio? 3. What is the variable expense ratio? 4. If sales increase to 1,001 units, what would be the increase in net operating income? 5. If sales decline to 900 units, what would be the net operating income?

Answer 1

Requirement 1

Contribution margin per unit
A	Sales	$    95,000.00
B	Variable Expense	$    57,000.00
C=A-B	Contribution margin	$    38,000.00
D	Number of Units sold	1000
E=C/D	Contribution margin per unit	$            38.00

Requirement 2.

CM ratio
A	Sales	$    95,000.00
B	Variable Expense	$    57,000.00
C=A-B	Contribution margin	$    38,000.00
D	Number of Units sold	1000
E=C/D	Contribution margin per unit	$            38.00
F=C/A	CM ratio	40%

Requirement 3

Variable expense ratio
A	Sales	$    95,000.00
B	Variable Expense	$    57,000.00
C=A-B	Contribution margin	$    38,000.00
D	Number of Units sold	1000
E=C/D	Contribution margin per unit	$            38.00
F=C/A	CM ratio	40%
G=B/A	Variable Expense Ratio	60%

Requirement 4

A	Sales	$    85,500.00
B	Variable Expense	$    51,300.00
C=A-B	Contribution margin	$    34,200.00
D	Fixed Expense	$    31,920.00
E=C-D	Operating income	$      2,280.00

Net operating income would be $2280